Newport Ltd is a small boutique retailer that sells surfboards and swimwear on the Northern...
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Accounting
Newport Ltd is a small boutique retailer that sells surfboards and swimwear on the Northern Beaches of Sydney. The following ratios are provided by management to assess the performance of the business over the last two years.
|
| Year Ending December 2020 | Year Ending December 2021 |
| Profit Margin | 10.0% | 7.5% |
| Current Ratio | 1.7:1 | 2.1:1 |
| Debt/asset ratio | 85.6% | 65.2% |
| Return on assets | 15.5% | 10.0% |
Required:
a) Using the information above discuss how the profitability, solvency and liquidity of Newport Ltd has changed from 2020 to 2021. In your discussion indicate which ratio(s) would be used to evaluate each category of performance and what the change in performance means for the business. (6 marks)
b) Provide a recommendation to Newport Ltd regarding how the company could improve its profitability in 2023. (2 marks)
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